We made an early and intentional business decision to be highly focused on funding only short-term residential “fix-and-flip” rehab loans. When developing our initial business plan we weighed the pros and cons of this decision and thought it’d be worthwhile to share our thoughts with investors who are considering funding projects with us.
So here you go…a behind-the-scenes look into our strategy.
Having a narrow focus causes us to miss out on some good opportunities. We decline a high percentage of deals simply because they don’t fit within our appetite. Some of these are otherwise investable projects.
However, by having a narrow focus, we reduce the number of variables we need to understand before funding. This allows us to have deep understanding of project risk, move quickly and increase our investors’ likelihood of success.
We believe the short-term fix-and-flip market is large enough to build a successful business. By being the market leader in this vertical, we can offer better products and services to our borrowers without increasing the risks to our investors.
Insight: We’re willing to sacrifice a larger market opportunity in favor of building a long-lasting company built upon specialization that provides value-add to both borrowers and investors.
Single Product Line
Some investors might like the option to invest on one platform that has multiple asset classes, both in debt and equity. Our strategy offers investors one asset type: short-term residential debt investments.
The positive tradeoff here is that investors will always know what they’re getting from us. The structure of each deal is essentially the same. We minimize the number of variables per investment so that in time, investors can make fast and educated decisions about which projects fit their risk/return profile.
Insight: We’re willing to sacrifice a more diversified product line for consistency and transparency. A diversified product line is only as good as how it’s underwritten and to the extent an investor understands the risk/return. Specializing allows us to offer a high quantity of high-quality investments in the vertical we know best.
Our Product isn’t Very “Sexy”
There are a number of really cool projects which you can now invest in online. You can invest in marquee hotels, New York City skyscrapers and new mixed-use development projects. It’s unlikely you’ll find any of these projects on our platform.
While it’s certainly fun to tell your friends you’re an investor in a big name property, we’re not convinced those projects offer the best long-term risk-adjusted returns. All the hype that goes into them can inflate the value of the investment. We’d rather offer a “vanilla” product that churns out consistent and repeatable returns.
Insight: In time, our consistent underwriting and investor returns will earn us the headlines. We’d rather get press for establishing ourselves as a market leader in our vertical than by funding vanity projects that may not be in the best interest of our clients.
Like any business decision, there are pros and cons of being specialists. We believe that specializing creates more opportunities for transparency, value-add and market-leadership. Ultimately, we believe that being a specialist will allow us to better meet the needs of our clients and this is the most important principal for creating a long-lasting business.